tag:blogger.com,1999:blog-19649274.post6137671486984905058..comments2024-03-29T12:03:50.891+05:30Comments on The Leap Blog: Hedging using derivativesAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-19649274.post-80874431853994267832009-07-06T18:11:35.519+05:302009-07-06T18:11:35.519+05:30Dear Sir,
Please share your thoughts on
"Hed...Dear Sir,<br />Please share your thoughts on <br />"Hedging away the core source of profit"<br />I believe that feasibility of refinery business is not only related to current 'crack spread' but it is also a function of at what rate/time you are buying the raw material and selling the products as back to back buying selling is not practical. Consider the following cases<br />Case1: Crude inventory is built at a particular level and then the price corrects lower. In this case even though the crack margin may be positive the loss due to high raw material price may make transaction infeasible.<br />Case2: Products are sold through forward contracts and the crude price goes up at the time of raw material procurement.<br /><br />I think these factors should get equal consideration while determining the feasibility of refining/processing business.Gaurav Sharmahttps://www.blogger.com/profile/00745571080620559244noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-50959931343993153812009-07-05T14:14:28.548+05:302009-07-05T14:14:28.548+05:30Agree with some comments in the Blog. Practically ...Agree with some comments in the Blog. Practically the banks with their treasury desk on whom the industry relies more are also not equiped enough or doesn't advise the clients proactively when the situation is about to reverse.Once the heging tool becomes a nightmare for some industries. It may even lead to an eventual cause of die-out for some. Still today in the onshore market to cover up old contract or roll over past position bankers are active.Either they may be enjoying profit if they are the counter party to contract or doesn't have skills to suggest taking forward and loing the equivalent premium which is much more better than what in past someone has entered at 40 or 42 thinking it will go to 35. AS11 implementation will lead to disclosure of such many.abdp76https://www.blogger.com/profile/10814368206923717923noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-31032440097828293532009-06-29T14:17:39.221+05:302009-06-29T14:17:39.221+05:30Another aspect that can be looked into especially ...Another aspect that can be looked into especially with ref to indian corporates is the way coverage is being measured and how the derivatives taken especially options being managed. In lots of cases, corporates into derivatives don't have the requisite skill set and thus several times we have notional opportunities driving the derivative trading rather than economic exposure management. Apart from that cost reduction strategies create possibilities of extending losses cause we end up with multiple positions where though the cost has been reduced but the open exposures could be very high and way different from the exposure being hedgedMiNdless RamBlinghttps://www.blogger.com/profile/04190227579782766932noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-20777070449086449302009-06-29T13:47:51.702+05:302009-06-29T13:47:51.702+05:30I agree with the theme of the blog and I have the ...I agree with the theme of the blog and I have the following points to make<br />1) It is generally media including financial papers that make huge uproar over derivative losses without knowing that whether it was a speculative trade or an offset hedge.<br />2) Govt. itself seems to be confused on derivatives front. Consider a case of a corporate that has used derivatives as a hedging instrument but everything goes for a toss as Govt. has banned futures. <br />3) Besides this corporate lack conceptual knowledge about hedging and therefore blame others for selling exotic derivative products. This deficiency is projected as if hedging is bad.<br />4) There is no market depth; Indian commodities markets look hollow when one wants to hedge 6-months exposure. At the most two month contracts are liquid that too in a very few commodities.<br /><br /><br />On comment by Santosh, <br /><br />One employs a hedge only if it is feasible considering the cost of hedging. If cost of hedging itself is greater than price risk; better take a subjective call.<br />I think there are no free lunches out there, one would be exposed to additional risk in so called "active hedging". Anything you do other than hedging dilutes the objective of hedging. I would say that is speculation.Gaurav Sharmahttps://www.blogger.com/profile/00745571080620559244noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-74898169734993564912009-06-29T03:06:24.056+05:302009-06-29T03:06:24.056+05:30Hi Ajay,
One can have passive hedging or active h...Hi Ajay,<br /><br />One can have passive hedging or active hedging. In active hedging one can try to make money and save hedging cost.Unknownhttps://www.blogger.com/profile/15044922908186825804noreply@blogger.com